ENFORCING AUSTERITY May 8, 2012

Austerity economics, predictably were voted down by Europeans over the weekend.
As expected Francois Hollande out polled Nicolas Sarkozy by getting 51.7%. Nicolas Sarkozy was the first incumbent to lose in a presidential election since 1988. Some have suggested it was a vote against Sarkozy rather than a vote for Hollande.

Karen Kissange in The Sydney Morning Herald considers the political and economic implications of the Hollande victory:

GERMANY is facing a threat to its economic leadership after Europeans have voted resoundingly against its tough policy of austerity to save the euro, with the French electing Socialist Francois Hollande to the presidency and Greeks savaging their two main political parties in parliamentary elections at the weekend.
Mr Hollande has repeatedly promised to rewrite the German-led fiscal pact to save the euro that imposes tough budget measures on member countries. He said in his acceptance speech, ”It’s now my mission to give Europe a measure of growth, employment, prosperity. That is what I will tell our European partners as soon as possible, and starting with Germany, in the name of the friendship that unites us and the responsibility we share.”

Chancellor Merkel’s success in the upcoming German elections cannot be taken for granted. Considering the results in the parliamentary elections in Greece where the major parties that supported the austerity policies and financial bailout were upstaged by previously minor parties, including the proto-fascists who attracted 7%, Juan Cole suggest other reasons for Nicolas Sarkozy’s electoral failure:

The bad economy in France and outgoing President Nicolas Sarkozy’s refusal to do a stimulus program, preferring instead “austerity,” were the primary reasons he lost the election to Socialist Francois Hollande. That and Sarkozy really is an annoying, strutting peacock who wore out his political welcome among voters.

But some of the margin of his defeat came from his pandering to the discourse of the French anti-immigrant far right, which he did especially vocally after he was forced into a run-off against Hollande. Sarkozy said there are too many “foreigners” (he meant immigrants) in France, that police should have greater leeway to shoot fleeing suspects, that the far right are upstanding citizens. He even talked about “people who look Muslim.”

Many observers in France argue that Sarkozy stole so many lines from the soft-fascist National Front of Marine LePen that he mainstreamed it, and made it impossible for the Gaullists of the Union for a Popular Movement (Sarkozy’s party, French acronym UMP) to argue that LePen and her followers should be kept out of national government because they were too extreme. (The irony is that Sarkozy himself is the son of a Hungarian father and his mother was mixed French Catholic and Greek Jewish; and he postured as Ur-French!)

There is always going to those who pour cold water on electoral celebrations, which are particularly joyful when they are close and they suggest real change might be possible:

Cut backs of social benefits for the population at large, linked to the financial interests, always create conditions for the rise of those scapegoat outsiders of one stripe or another. In the case of France they are linked to its colonial history, although The Declaration of the Rights of Man and the Citizen has not being forgotten.

Nonetheless the people voted in both France and Greece for one result, and the financial markets for another, that saw the loss of net value of 9 billion dollars on the ASX. The political implications of the financial crisis of 2008 have not yet being resolved. The Germans in due course next year will have the opportunity to express themselves, but those in the United States in conformity with the highest ideals of democratic practice will not, although the Hollande/Sarkozy choice comes close.

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Tim Leslie and news reports, Austerity sees Europe go to the extremes (ABC News). Is not this political reaction, in all the countries involved foreseeable and predicable? This suggests to me a degree of remoteness from the concerns of people and arrogance, not to mention a lack of consideration of alternative, viable economic policies. This is not for the first time, nor without precedent elsewhere, in particular South America, raising the question as to what is going on.

In truth, the choice isn’t simply between budget-cutting austerity, on the one hand, and growth and jobs on the other.
It’s really a question of timing. And it’s the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.
That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy – and thereby increase the size of the public debt relative to the size of the overall economy.
You end up with the worst of both worlds – a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed.
The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget axe.